U.S. Unemployment Rate Headed to 12%-13%, Economist Says

David Rosenberg is not a very bullish guy — yet his pessimism about the U.S. economy in recent years has proven prescient. Now, Mr. Rosenberg, a former chief North American economist at Merrill Lynch who joined Toronto-based consultancy Gluskin Sheff & Associates as chief economist in May, says the nation’s unemployment rate is headed for 12%-13%.

“There are serious structural issues undermining the U.S. labor market,” he said in a note to clients Wednesday, emphasizing that the surge in unemployment resulting from the Great Recession is only part of the problem.

He points out that beyond those who are counted as officially unemployed, “there are the record number of people [about nine million] who got furloughed into part-time work,” plus many more who have dropped out of the labor force altogether.

Mr. Rosenberg’s call comes at a time when despite glimmers of improvement in the nation’s job market (such as a slowdown in new unemployment claims and a small uptick in job openings), unemployment continues its sharp rise. The U.S. unemployment rate hit 10.2% in October, according to the Labor Department, double the 5% rate seen just last year and the highest level since 1983.

Other economists, such as Jan Hatzius, chief economist at Goldman Sachs and Nouriel Roubini, a professor at New York University, have floated the idea that unemployment could hit or even surpass 11%, but Mr. Rosenberg is the first to predict an unemployment rate as high as 12%-13%.

“If it weren’t for the drop in the labor force participation rate… the unemployment rate would be testing the post-WWII high of 10.8% right now,” he writes. “The business sector has a vast pool of resources to draw from before they start tapping into the ranks of the unemployed.”

“Hence the unemployment rate is going to very likely be making new highs long after the recession is over — perhaps even years,” he writes. “This will undoubtedly be a major political issue.”

Yet others remain much less bearish. Joseph LaVorgna, for example, chief U.S. economist at Deutsche Bank, said in a client note Wednesday that the unemployment rate could peak before the end of this year and start to fall.

“We believe we could be closer to a peak in the unemployment rate than some analysts expect,” he said. “For starters, it is worth noting that unemployment tends to keep rising until it suddenly reverses and begins moving back down…whenever the unemployment rate turns many market participants may miss it.”

“More important…the peak in unemployment duration as measured by the number of people employed between 5 to 14 weeks is an excellent leading indicator of the labor market,” he said. “In the past, this series peaks one quarter ahead of the unemployment rate. [So] if history repeats, the unemployment rate should peak this quarter.”

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